> "There is frustration with Germany," says André Sapir, a senior fellow
> at Bruegel, a Brussels-based think tank. "Germany is moving ahead,
> but what are they doing for the rest of Europe?"
I'm having a hard time reading this as anything but "Where's our handout?".
I understand the sentiment, but you're overlooking one big factor.
In a true free market scenario with freely floating currencies, currencies in countries like Spain, Italy, Ireland, Greece would have devalued. Germany's currency would have strengthened. This would have made German exports (to other EU countries) much less competitive than they currently are.
However, the Euro tightly integrates these other countries with Germany and makes it very difficult for them to revive their economies.
Using a single currency without a single federal government was a risk for all countries involved. Germany has a huge interest in keeping the Euro alive and the EU as a single unit. It shouldn't be surprising that many people in other European countries expect something in return (for having given up the options that they had before the Euro)
> In a true free market scenario with freely floating currencies, currencies in countries like Spain, Italy, Ireland, Greece would have devalued. Germany's currency would have strengthened. This would have made German exports (to other EU countries) much less competitive than they currently are.
Well, even without free-floating currencies, countries like Greece could just lower the wages, which would in turn reduce the price-level of Greek products, making them more competitive.
Yes, but this would not help the debt of the people (and government). In fact, it would make things worse. This is the problem that Greece and Ireland are facing. Those governments are reducing expenditures but their debt payments remain the same. They are getting squeezed.
In a truly free market situation the bond market likely would have stopped buying Greek bonds because of the fear of currency devaluation long before their structural problems became overwhelming. Sometimes though the bond markets make a bad bet and currency devaluation becomes necessary. That's the free market. There's risk in buying bonds. However, in the EU the bonds have an implicit guarantee from the ECB, Germany, and France.
the bond market likely would have stopped buying Greek bonds because of the fear of currency devaluation
There's a reason why this kind of thing might be true, because bond holders might hope for intervention, as indeed happened. But I doubt it in this case: (i) the Euro treaty forbade intervention, and (ii) the CDS markets, which one would think would be very sensitive to risk of default, were not worried until shortly before the bond markets proper were.
I was talking about a scenario in which Greece wasn't part of the Euro. The bond market would have attempted to factor in the risk of default or currency devaluation in its purchases of Greek bonds.
Ah, I misunderstood: by free market you meant exchange rates, not the bond market.
But note that the Euro is for the purposes of this situation equivalent to the gold standard. Fixing exchange rates means trading the risk of currency depreciation for an increased risk of default, as we seem to be assuming the bonds are issued in the local currency.
The issue here seems to have been ignorance on the part of bind investors to the reality of the Greek situation.
people in germany are very pissed about the "rettungsschirm" which guarantees in principle the bail-out of all the other euro countries (PIIGS, portugal, italy, ireland, greece, spain) because it is german money that is given to the other countries. if there would be a referendum about the euro, german people would vote for leaving the euro zone. they want their deutschmarks back. the euro is a political instrument and was never welcome by the people in euroland.
From this follows that every second german doesn't want the D-mark back. Far from "people in Germany".
Also, this poll was done after a big campaign by BILD (german tabloid) that other european countries are bleeding Germany, which probably skewed results in favor of abandoning the Euro.
Sgift described the campaign as informing readers that other countries are "bleeding Germany" (presumably money, not literal blood).
That doesn't sound inaccurate. Tabloid != incorrect, you know. Tabloid is merely a pejorative label applied to newspapers which don't attempt to hide their opinions.
Biggest newspaper, heavily self-opinionated. Even _if_ (big if, I don't buy it) the "the Euro is costing us poor Germans too much" would be right: What do you think what would be the outcome of a report like this for the following survey?
They reach (according to Wikipedia. YMMV) > 12 million readers. If after their anti Euro campaign (again, ignoring the facts at all) still 50% of the population are in favor, how does this even remotely make the non-supporters a majority?
Having done the numbers: The track record for facts from that specific newspaper is poor. Even if you like their agenda in this point, please don't implicate that they are NOT largely misleading (to avoid harsher terms).
I'm German and am very happy with the Euro and don't want the mark back. the problem ist that many people kind of understand the "Rettungsschirm" but don't understand the benefits of the Euro, especially that other European countries can't devalue their currency withe respect to Germany. This is a HUGE benefit for the German economy and therefore it makes sense that Germany pays more than other countries.
By "kind of understand", I think "don't understand" is most common. Knowledge that the "parachute"/"bailout" is refinancing as opposed to assuming the debts doesn't seem to be widely spread.
Likewise the German opposition to default is not widely examined: weak German banks, esp. the Landesbanken, are heavily exposed to peripheral Euro debt (who was better placed to offer loans for those shiny German exports?), and the farce that was the stress tests would quickly be exposed if there were defaults in Greece, Ireland, let alone Spain.
Why was the Germany finance ministry to openness about the stress tests.
The problem is a hangover from a slack money culture that existed before the crash, and slack money requires more than feckless borrowers, it also requires irresponsible lenders. There may be a morality tale in here somewhere, but it's not the simple good country bad country one from the Bild.
Without the Euro Germany wouldn't be quite the exporter it is now. Italians can buy German products because of the Euro. Initially Germany wanted to keep Italy out of the Euro but the Italians pointed out that they would devalue their currency and then German milk, cars, etc. would not be able to be bought in Italy.
The Euro may not have been welcomed by the people but it was welcomed by corporations and banks. Corporations and banks had (have) more power.
I don't think so but the Italian government at the time wanted to be part of the Euro. I happen to think trade barriers are good (at some level). I'm opposed to free trade because there is no agency to regulate against negative externalities.
Huh, you'd think they'd be used to bailing everyone else out after the massive devaluation to their Deutschmark retirement savings after monetary union.
Personally, I find the success of Germany not terribly surprising given that they were going okay before union. The thing that perplexes me is these other countries that are falling apart, as they didn't strike me as so terribly fragile either.
People say "oh, they are lazy", but laziness creates a vacuum, and somebody will step in to take advantage of the opportunities.
This is absolutely true. I would personally like few things more than to see the Euro gotten rid of (though that's nearly impossible at this point thanks to speculators).
No, the issue is that which ever country steps out of the Euro first is going to be hammered by speculators. Personally, I would expect countries getting back to their own fiat currency to do better but the currency itself will certainly be worth less. And no matter how much money I had I wouldn't be willing to bet against everyone else' shorting.
Exactly! this means that german workers cannot get an increase of their salaries but some multi-national banks and cooperations earn billions. At the moment the european economy is more neo-con that the american ever was.
I agree with your point, but doesn't this analogy extend to the states too? I don't know which states import more than they export, but should they be saying "Where's the handout?"
Ironically the states most in need of help have been saying "Nope, don't give me any stimulus money. Don't give me money for high speed rail"
And (stupid?) sources of these commentaries keep forgetting that Germany and France (but AFAIK mostly Germany) are footing majority of "european" expenses. German workers are the ones willing to tolerate lower wages so that others will be able to develop and compete with them easier.
I mean think of it - these guys dug themselves out of shit, while bailing out the rest of Europe. Using mostly common sense and hard work. They also had a retirement plan reforms, which changed retirement from 65 to 67 (!!!!!) for men and they took it with grace, no riots no thrashing of commonwealth (Greece? France??).
Disclaimer: I am not German, but I wish that my national leaders would have the integrity and vision of German leaders.
Most of the time they do have the vision, but the problem is that every proposed reform is heavily objected to by the unions, pensioners, students and so on. For example, flat tax rate reform proposal under previous government, then the pension reform last year. It's always the same: large population groups (pensioners, students, state-payroll workers) do not want to give up those privileges ...
unions, pensioners, students, etc... got their own leaders which are defrauding the people they should lead.
Thats the difference between Germany and the rest of the Europe. Maybe in industry the fact that workers get to share the board with investors help, I don't know. But I know that Germans manage to not shit in their plate time and again.
Be careful what you wish for. Not only lasts the current German boom on the shoulders of Spain, Greece and so on but also on millions of workers whose salery has to be filled with federal money each month. Which means none other that the current earnings of companies are subsidized by taxes or better: social welfare.
The attitude expressed in that quote is indeed pretty ridiculous, but it's not as simple as asking for a handout. The ongoing debate is about German consumers not consuming enough and saving too much. And because Germans are saving so much they tend to be very aggressive inflation hawks, which led to the ECB _raising_ interst rates in 2008.
Still, I think, it is deplorable how little respect the Germans get for simply making what others want. They're doing that very well and other European nations should ask themselves how they do it instead of complaining about a two speed economy. Get up to speed guys!
The quote is quite harsh, but hides a real problem of our (I am from Germany) economic model: Export only works if other countries import. If all countries in the EU would follow the german model and maximized export, while ignoring their home markets Germany's economic growth would be a thing of past.
Germany isn't doing anything to maximize exports. Its just a net lender to the world. It has more savers and policies that don't incent its citizens to borrow too much.
It isn't paper that the world is borrowing from Germany; its the labor of Germans.
If the rest of the world stops subsidizing credit and balanced their budgets, the principle effect will be a decline in interest rates in Germany. And Germans will find it more reasonable to consume more or start new companies at home.
Its not a problem. Germany wins either way.
And those that keep consuming more than they produce will continue to lose, just as individuals do that behave unwisely.
The last page of the article highlights a problem with your line of thought: Wages didn't profit (much) from the economic growth of the last years. And without money germans cannot consume more. This is a problem for an ever increasing part of the work force as cost of living is on the rise.
(There were people who benefited from the economic growth - I count myself among them - but that doesn't invalidate the argument regarding the whole work force)
Wages rose quite a bit in countries that were net borrowers. All the extra cash bid wages up and the higher wages even caused many to move to those countries to get those higher wages. Importing goods is not the only way to import labor.
The net lender countries didn't experience the same wage growth. But they didn't see their currencies inflate either. Except for those otherwise soundly managed countries that for some reason share a currency with a bunch of poorly managed countries. These countries got the stable wages and the privilege of subsidizing their partners.
> And those that keep consuming more than they produce will continue to lose, just as individuals do that behave unwisely.
The comparision between private households and state households is invalid. That's on of the main errors of Neo capitalism. What is wise for individuals is dumb for states.
Because states households are circuits. They press and rotate money. The money they spend comes back partially.
Private individuals households are linear they receive and spend money. The money they spend is lost forever for them.
Money spent by government comes back as tax income by stimulated economic growth.
> Money spent by government comes back as tax income by stimulated economic growth.
You're ignoring the fact that said money was stimulating economic growth before govt took it.
Govt spending is not stimulating. Stimulating spending is stimulating, regardless of who does it. Unstimulating spending is unstimulation, regardless of who does it.
The difference between private spending and public spending is that private spending is usually an attempt to make money while public spending is a combination of keeping govt employees happy and buying votes. (Yes, the two are related.)
Taking money from individuals and using it for politically popular "investments" usually winds up destroying the capital. Politicians don't usually care if its paid back, as long they can claim credit for giving it away.
Private investors are much more likely to earn a return on an investment. Which means they can keep re-investing it.
Yes, you get all the "stimulating" effect without destroying wealth. Of course, its been that way wherever societies become wealthy.
And government handles all of the "investments" wherever societies become poor.
I wonder at what point does a household magically transform into a state that suddenly lives by different rules. When you add the tenth individual? The hundredth?
Of course, the answer is whenever the group becomes large enough so that people lose track of who's taking what.
Government likes to make waves on the pond, point out the highs and distract you from the lows and how much disruption is created.
When the group is small, its a lot easier to identify someone that's just splashing around and claiming to create value.
No, this is not a zero sum game. Germany just makes better stuff. It's not cheating. If everybody else did the same, the world as a whole would be wealthier and the imbalances you're talking about would smooth out.
If everybody just made better stuff they would not need imports from germany anymore. The motivation of trade has always been imbalance. I fail to see how those imbalances would smooth out. (Leaving out the perfect world scenario that every country would have some unique, equally valued tradeable thing/service/whatever, a fair starting situation so to speak. This would be ideology)
If everybody made better stuff (and did not need foreign imports), the world would just have a lot of better stuff (i.e., everyone would be wealthier).
The motivation of trade is simply comparative advantage. Trade is beneficial regardless of whether the products being traded have equal value.
Care to elaborate why this would be the case? I mean, it sounds great and I know the usual arguments that economy is not a zero-sum game, but this sounds way too much like "Hey, it works great in the short run and for one country - let us all do this and hope that it works in the long run!" to me.
Do you really believe that making better stuff more productively is something that only works for one country in the short run? Sure, there are always factors like exchange rates and interest rates that skew the whole thing a little bit one way or the other, but the reality is that Germany is not cheating, they are simply better and them being better does not cause others to fail, it just highlights that fact.
If other nations became more productive, the German current account surplus would shrink and the global productivity level, by implication, would be higher than now. My argument rests on a simple assumption: Higher productivity equals greater wealth. This can of course be questioned on a philosophical level, but not on the basis of mainstream economics.
> Do you really believe that making better stuff more productively is something that only works for one country in the short run?
I don't, but I believe someone has to buy this production or increased productivity doesn't help anyone.
Your assumption sounds correct, but isn't the base of Germany's economic growth in the last years: Germany didn't increase productivity (at least not by a significant margin), but decreased wages (compared with it's neighbors). And this decreased wealth.
Inflation adjusted wages in the US are pretty much unchanged for over a decade as well. Yet, the US has a massive current account deficit whilst Germany, a welfare state, has a current account surplus even with China, a low wage export oriented economy. So wages cannnot possibly be the reason for their success.
I don't deny at all that there are many short term effects and flucuations that have nothing to do with productivity. But we're talking about the different speeds of European economies and those different speeds correlate very well with different levels of productivity.
And look at the Greek stock market. The biggest non financial companies there are a Coke bottling company and the lottery. The biggest German listed company (I believe) is Siemens, which makes high tech industrial equipment like power plants or health care equipment. The Chinese want that. They need energy, they don't want to play in the Greek lottery and they can bottle their own Coke. That's the reason for the two speed economy.
I agree with your argument -- IIUC you're invoking comparative advantage. But the two concepts above are fundamentally different. Wealth is a stock, while productivity is a flow multiplier (e.g. A(t) in Solow model: http://en.wikipedia.org/wiki/Solow_residual). Saying "equals" is a bit adventurous, IMHO. Probably a bit pedantic, but then you do stress that that statement is on the basis of "mainstream economics".
It is also out of self interest that Germany pumps money back to the European rescue funds from their trade surplus with these less-than-stellar European economies. It's not altogether unlike how China finances the US debts by selling more stuff to it. So in the end, it just leads to more co-dependence.
Greece, Ireland, etc. are not being bailed out. Duetsche Bank is being bailed out. Greece and Ireland have been given guaranteed loans at high interest rates. It's money that they are paying back (provided they don't default). Germany is propping up its banks that made bad bets.
The subsidy is in the form of a shared currency, and Germany is the primary beneficiary. With Germany running a large current account surplus, its currency should be appreciating drastically, and that of its trading partners depreciating. Because the currency is shared, and the exchange rate locked in, this can't happen, so in effect Germany is running a mercantilist beggar-thy-neighbour strategy.
The monetary union is voluntary and some European nations used it to load up on cheap debt that they are now asking the Germans to help pay down. Using a common currency always means that interest rates and exchange rates will not be equally appropriate for everybody. It's the same in the US.
The debt was cheap because the interest rate was too low. The ECB ran rates low to help Germany's sclerotic economy, and those low rates fueled borrowing elsewhere.
As to the idea that the monetary union was voluntary: the monetary union was a political project, not an economic one. By opting out, nations were to some degree dissenting against the entire EU project. Without some degree of fiscal union, it was probably a mistake; but it's unlikely such a union could have ever occurred without a monetary crisis. In many ways, the monetary union was a leap of faith into greater union, with the idea that we could sort out the problems later (never let a good crisis go to waste, etc.).
But it has always been the Germans who kept asking for higher interest rates and a harder currency. The monetary union, as you surely know, does not include the UK, Denmark or Sweden. That's because these countries opted out. No one forced the Greek into the MU. They cheated their way into it by falsifying their accounts.
I remember the discussion over Greece at the time - about how extra leeway was made to squeeze Greece in a couple of years late. Everybody knew about it. The explicit extent of it was in the news not long after:
Sep 2004 http://euobserver.com/?aid=17351 : "Greece was in breach of the euro rules at the time it joined the single currency, according to new figures produced today by the Greek government."
Re Germany - it was at risk of deflation! German politicians were constantly moaning about how high ECB rates were, and how they had to be lowered, and that was the wide consensus of economists too:
The links you provide are mostly from the previous recession. In a recession politicians demand rate cuts everywhere, even in Germany. What I'm saying is that compared to other European countries the Germans have always been on the hawkish side. They were the ones who made sure that the mandate of the ECB did not include fighting unemployment (contrary to the US Fed). They were the ones who wanted the "no bailout" clause in the treaties. They faught the French "economic government" idea tooth and nails. Their ECB members are the greatest hawks. The Germans have always been scared of importing Italian style economic policy and they made sure the ECB's only mandate was fighting inflation.
The Greek were not forced or pressured to join the MU. The article does not say that at all. They wanted to join and the other countries didn't want to block them even though they suspected the numbers weren't quite right. The full extent of Greek book cooking was only revealed in 2010 (or 2009?).
The point is that I'm describing a bias of German policy, not some kind of hard and fast rule that holds without exception. Spain would be another example similar to Ireland. But that's all temporary and doesn't change the fundamental bias of Germans to fight inflation first and foremost.
Yes, and my point is that the ECB was therefore be stuck: too high a rate and Germany suffers, too low a rate and places like Ireland suffer. Ultimately the ECB chose a rate which was better for Germany than for Ireland, in the balance of things, and now Germany is very unhappy that it got such a good deal.
You're absolutely right that the rate was totally inappropriate for Ireland at that point in time. Today, it is more appropriate for Ireland than it is for Germany. These issues are inevitable in any currency area. The benefits are also well known.
But since Italy, Spain and Greece run the same currency - why don't they use the same strategy? Are you saying that they are more "ethical" and don't have the stomach for such an evil deed?
Edit: I apologize to readers and commenters - I got out of context, I'm not referring only to the current monetary/fiscal position of Germany, but to the whole process that got everybody where they are.
They cannot all run current account surpluses with one another; it's a mathematical impossibility. Germany's current account surplus with other Euro-zone members corresponds exactly to a current account deficit; the sum of the two is zero in this zero-sum game.
Because they don't have a surplus? The issue is multiple drastically different economies trying to use the same currency. All the reasons you try to appreciate or depreciate your currency are not available to most EU countries.
This ruin was in the making for decades. While germans were busy figuring out how to produce better stuff for cheaper PIIGS were busy figuring out how to sell shit for more.
One strategy is hard short term, but bears long term dividends - the other is awesome short term but spells ruin in the long term and the ruin came.
And now the Germany is at fault for all the years of support, encouragement, warnings and leading by example to these countries? I don't buy it :)
You're right that it's not only a fiscal issue; it's a monetary issue. Ireland was ruined by low German-style interest rates making money far cheaper than it was before; that fueled a property bubble.
The gains to Ireland from 1990-2000 or so were real; the Celtic Tiger wasn't hype. Much of the gains in the past decade, however, were from too low an interest rate.
Europe in general (perhaps with the exception of the UK) is much less saturated with Made in China goods than the rest of the world, perhaps due to more stringent adherence to standards and quality, or perhaps as a result of its trade laws that still somewhat protect European-made goods.
Germany has benefited greatly from the expansion of the European internal market, and has always had, and still does have, a very good name. Everything from cars to electronics, down to appliances and kitchenware, Made in Germany still speaks volume on the continent.
Despite the somewhat higher prices of German goods (and they are actually kept quite low due to various work-sharing labour arrangements), weighing things on a quality-price scale, they still come out better value than a lot of alternatives. So it's really no surprise that the country is running such a huge trade surplus against the rest of the continent.
On the other hand China does export a lot to Europe, especially in Eastern Countries; since they are cheaper. I don't have any stats, but I see "made in China" stuff everywhere.
I can see how that's very likely, my experience is limited to Western Europe at the moment:) We still see quite a lot of goods in cheaper stores that come from China, but nothing like the market domination I see back in North America. Over here in NL for example, I see way more stuff coming from France, Germany, Italy, etc, than just China. I think consumers in some parts of Europe prefer goods that are better quality, even if they are a bit more expensive. From a longer term cost-benefit stand point, it usually works out cheaper anyway.
When speaking about finished products, I also saw lots of stuff made in UE in Eastern Europe.
But for example China exports a lot of textiles. Many clothes are still made in Europe, but a large percent of textiles come from China.
That said, I'm glad that Germany can be the powerhouse that it is by focusing on quality rather than cheap-labor. It shows that it is possible. Good for them.
It's good to know that quality still sells, and prices aren't everything.
Maybe because of Europe's location, I see textiles sourced from places like Turkey and even Latin America, rather than purely from China/Asia in general. What kind of things do you see coming out of the UE?
Being from Germany I'd also like to point out that that there's another country that did very well throughout the recent recession, namely our neighbor Poland.
The reasons there are probably quite different and also have very little to do with China.
The Zloty is now worth 18% less than in 2008. That translates into 18% cheaper wages. So for Poland, one important aspect is that they had their own currency. The PIIGS are forced into years of deep depression and painful wage cuts to achieve the same increase in competitiveness.
What everybody forgets is that Germany did proactively cut the real income with other means than inflating the currency. The wage cuts did happen proactively before they became really painfull.
With so many countries borrowing so much to make their bubbles grow and regrow, citizens of countries that don't go for this false growth are supplying the funds by deferring consumption and saving their money.
And countries like Germany and China run trade surpluses, because the bubble countries are not borrowing paper; they're borrowing the labor of all those savers.
That labor must be delivered somehow and that's why there has to be a trade surplus.
The bubble countries can't resolve this imbalance by cajoling the savers into not saving or somehow obstructing trade. The trade imbalance HAS to equal the net borrowing of the country.
The only way is to correct the trade imbalance is balance their budgets AND stop artificially lowering their own interest rates, which causes the private sector to borrow more than it otherwise would.
Policymakers have bought into the idea that somehow there is a shell game to be played that magically creates prosperity. But the reality is that all the game playing wastes an enormous amount of resources.
It feels like you are saying something insightful here but I struggle to parse your writing. Could you somehow rephrase what you just said in more layman-readable English?
It's more accurate to say that the results of labor are delivered. That might be a product or service.
And these things can be exchanged for money, which can then be given to other people in exchange for their labor.
Yes, technically you are borrowing money, but it has no effect until its used to purchase the results of labor, which is what you actually want to borrow. Your mortgage is actually borrowing the results of all of the labor required to build it, including the labor to make the sheet rock.
If there's a disaster in Haiti and the US lends Haiti a billion dollars, that money will be used to buy things. Or pay people to do things, who will then go and buy things with the money.
Demand then rises for these things and more of them must be imported. Even if they come from a third country, that additional demand causes imports to increase there. Ultimately, that additional demand affects exports from the US.
And, if Haiti ever pays the money back, Haiti will be the one experiencing an increase in its exports.
The beauty is that we are not locked into buying just the products and services the lender offers. We can get anybody's.
To learn more about this, you could check out Austrian economics and the division of labor.
But one must take notice that Germany's eastern half has more in common with Poland, Czech and Slovakia than with western Germany - the workforce is still socialistic,... So real contribution of western population is enormous.
Its the workforce that was raised in philosophy that manual work is the epitome of human existence. The workforce that was raised in an era when management (at least where I live) could (officially) earn only 5 times as much as factory floor worker and when workforces primary motto was : You cant pay us as little, as little as we can work. In their age not studying and not developing critical thought was a rational decision.
So these countries are full of people who have "slacked" throughout their lives and are now expected to become competitive. This stands for public and private sector - with the difference that private sector had to improve a bit.
Everything is highly unionized - but unions are not the same as in western world. In socialist countries union was a paradox - so their existence in industry was limited to being a political propaganda apparatus - and they haven't changed a bit from then. So instead of working in the workforces interest - they are only working on their political position and promoting populist policies that will spell ruin in the future.
Thats what I mean with "socialist" - basically these countries are in transition to capitalism, declaratively theyre already there, but in truth it will take them at least a whole generation (or two) to catch up.
Given the financial benefits of producing and manufacturing in asia, Germany has to emphasize the quality of its products and exports to stay competitive.
A good example is a very new running shoe brand named Lunge that manufactures its premium running shoes very close to my hometown here in germany, a product that is usually produced in asian low-cost-countries.
As far as i know and in contrast to their competitors Lunge refuses to put their money into marketing and instead focuses its efforts solely on the development and manufacturing of their products. Of course they can't compete on the price level, but I hear lots of good feedback from customers that won't go back to asics, nike & co. and don't mind paying the bonus for substantial products. This also applies to me.
More here: http://www.lunge.com
Thats true but Germany is still too expensive. While other countries are getting better at the quality point Germany doesn't get much cheaper for production. I think if these thinks don't change Germany will get into trouble.
Cheap labour in other countries isn't an infinite resource, I've seen estimates that in about 40-50 years the difference will be gone: China and other countries that currently have cheap labour will have become so enriched that they will have a middle class and social makeup similar to ours, and not so cheap labour anymore.
You're thinking like the typical German it seems. What you should know:
- Other "cheaper" countries are getting more expensive as well, at a staggering pace.
- In Europe, Germany is actually much cheaper than 10 years ago.
- Currently the employment for qualified persons is doing very well
Germany's problem is rather that it's going out of qualified engineers at a very fast rate, thus accepting immigration should be a key politic.
Germany's politicians and CEOs have been very good at scaring people to keep their salary down, but if you look at the state of workforce now you'll see that all this doom speech that all jobs are moving to China and India was not quite true.
It's not too expensive. They lower cost as much as they can. The only way to get any cheaper would be decrease the quality.
Personally, I think that if all capitalism can ever hope to give us is cheap garbage then it's a failure (I don't think that is all it can give us, but some people seem to).
Germany is the number one exporter in the world, that's very true. But I think China is following the Japan/S.Korea/Taiwan model, versus the German route, in the sense that it's trying to move up the value-adding chain.
This strategy doesn't seem very helpful to the middle class :
"estimates that the disposable income of the German middle class hasn't increased at all in the past decade. About a fifth of the workforce, he says, is stuck in insecure and poorly paid jobs, often earning a dismal $550 a month."
And doesn't concentrating on the high end exposes Germany to improving capabilities of Chinese companies , and improvements in the Chinese brands ? china is working on those capabilities , how can Germany defend against those ? move to the higher end ?
A person earning $550 a month in Germani (or most of Europe) may be waaay better off than a person making $50k in US. You have your education, kindergarten, medical care, social security, retirement, etc... Already covered - so with these $550 (and this is just not true, minimal wages in Germany are higher - this has to be eastern German minimal wage) you only need to get through month for food and utilities (quite a lot of people earning minimum wages are living in nonprofit apartments).
So it's not just black and white.
AFAIK $550 is something I can hardly believe to be true, except in Eastern Germany for people aged 40/50+ without any knowhow or qualifications.
2. What's the rent for nonprofit apartments , or are they free and provided by government ? decent size , reasonable quality neighborhood , or small apartments and shitty
neighborhood (junkies , etc ? ) ?
3. What's the starting age for state provided kindergarten , what happens before that age , do women get social security ?
4. In short could german people earning those minimum salaries have a stable living with all the basics provided ?
1. There is no minimum wage, but if you earn less than the guaranteed minimum (359 Euro), the state will pay you the difference ("Aufstocker")
2. The rent is provided by state for jobless for the apartments. There are also programs for poor people which aren't jobless to get the rent from the state. The allowed size of the apartment depends on family size afaik. The quality depends on the city you life in, but is usually not too bad (no junkies).
3. Half-time from the 3rd year is guaranteed. There are programs for younger children and full-time places, but that's not guaranteed (but usually one can get a place). I do not understand the question if women get social security?
4. This is a topic of heated debate within Germany, so no conclusion here.
The topic is a bit complex, but yes women get money from the state:
1. 13 Euro/day for a period of 14 weeks (6 weeks before the birth of the child, 8 weeks after the birth)
2. 67% of their last wage (maximum 1800 Euro) until the child is one year old.
3. 184 Euro "Kindergeld" (money for the child, roughly translated) from the day of birth till the child is at least 18 years old (and maybe longer .. as said: complex)
Regarding point 4 - Short answer would be IMHO yes. You could live a stable life - but that is pretty much it. No mediterranean holidays, No gaming computers, etc...
OK I did some quick checks:
1. There is no minimum wage in Germany,
2. Social housing starts around 4€/m2 (http://goo.gl/NujS3)
3. This one I admit that I would only research I were German.
4. My opinion is above.
It is because of the slightly less socialist government we have here. If we can manage to trim some more of the huge government bureaucratic fat we can expect even more economic health. Germany will always be reasonably socialist, and probably for Germany (considering the culture, total state addicts here, even rich families get child support benefits, you can't change that overnight) a reasonable amount of socialism will be optimal, compared to English speaking countries, but I am sure we have a way to go as far as turning down the socialism dial, and turning up the free market dial.
German citizen who moved out of Germany here. The country rebooted from scratch in '48 with the most unsocialistic / market-libertarian constitution / law landscape the country has ever had so far. Immediately there was the "German economic miracle" (not a miracle at all) but since then socialism has grown every year. Notably faster paced since 1990 but "dialling down socialism a bit and the free market up a bit" is optimistic and illusory. Once this beast feeds and grows, there is no real turning back, all you can possibly adjust is timing. They now have not just income taxes but taxes on everything that moves and every step of every transaction or value chain. Once these taxes exist, they are never removed and keep being raised. Continuous talk about new taxes. All political parties are various shades of socialism and this is apparent in legislation. They make it harder for productive people and firms every year and the real miracle is that there is still "power in the power house", and I'm convinced they're still riding on the momentum of the 50s-70s. All these various 100s of "social state insurances" schemes and constructions are about to collapse a few years down the road and every euro spent on them whether through taxation or debt will not prevent this and just be a waste and destruction of productive human energy.
I dropped out, I stay a perpetual traveller and out of Germany because my conscience forbids me to feed this corrupt destructive apparatus and the greater EU with the fruits of my labour. The only legal way for me to still be able do this and keep my citizenship is to stay outside the country for 180 days or more a year, and not stay inside more than 2 months in a row -- roughly. But hey they the left was already calling to tax permanent travellers so I guess I'm not the only one.
I basically meant the current center left coalition is slightly less destructive than the far left SPD, you are right, we are still somewhat left of optimal.
Politically, little has changed in the last decade. There hasn’t been any major political shift away from anything in the last years.
All political parties, for example, share the view that it is important to preserve the welfare state. They might propose little tweaks here and there but that’s about it. There is no controversy about the fundamentals. The “socialist” party is not socialist at all and the “libertarian” party is not libertarian at all.
When I look at the current governing coalition I see it much more as a continuation of Kohl’s coalition.
Finally HN turned into a political forum. (Tongue in cheek)
The downfall of most parties is due to the fact that they do have no distinct marks anymore. For many socialdemocratic parties in Europe this began with embracing neocon agenda's. Christdemocratic parties turn to nature preservation, ecological parties advocate engagement in afghanistan ...
Tells me that the era of differences is over, calling parties extreme left or right in european parliaments is mostly uninformed bogus.
Well they have a imbalanced trade balance. By cutting wages of the middle class they will never get their domestic trade in order because these people won't have the money to buy their own products.
Can someone explain to me just how Germany is supposed to be like China? It seems to me that all the article is saying is that both countries are export driven, but that is just about it.
The basic idea is that when countries go into surplus an increased foreign demand for their products should push up wage levels, domestic demand and, in turn, price levels. With the rising prices there is less demand and the current account surplus equalizes.
I think the general argument is that Germany and China both run huge current account surpluses. China accomplishes this partly through structural regulations and by holding the yuan at an undervalued rate. Germany, on the other hand, cut taxes and reformed its labor and welfare systems in the mid-2000's but in a way that prevents the system from equalizing. The main reason the author gives is that wages don't rise because workers are willing to accept reduced pay raises for job security.
